Rearmed Pillage People Ride Again

Back in 1990, Gilbert Hyatt invented the first single-chip microprocessor, which earned him a lot of money, so he moved to Nevada, which has no state income tax. California’s Franchise Tax Board (FTB) claimed Hyatt lied about his residency, and that he owed millions in state income taxes. Despite a 2008 ruling in his favor by a Nevada court, FTB snoops kept after the inventor. By the time his case arrived at California’s Board of Equalization last August, the FTB was claiming that interest had run up Hyatt’s tab to $55 million. Trouble was, a 3-2 vote by California’s Board of Equalization determined that Gilbert Hyatt was indeed a Nevada resident when state tax collectors said he lied about his residency. So the BOE waived $5.7 million in fraud penalties and $5.7 million in taxes from 1992, That left Gilbert Hyatt with a 1991 tax bill of $1.9 million, including interest, a far cry from $55 million. California’s pillage people didn’t like it and are now deploying in new uniforms. 

Governor Jerry Brown and the legislature gutted the BOE and empowered the Office of Tax Appeals, a new state agency. As Dan Walters of CALmatters reports, “the FTB is now trying to persuade the new agency to reopen the residency case.” So Hyatt, who turns 81 this year, may be in store for more harassment on top of the many years he already endured. And he may not be the only target. As Walters also notes, in June the U.S. Supreme Court “granted the FTB’s petition to decide whether Hyatt’s successful harassment case in Nevada courts is valid.”

New federal tax law limits the deductibility of California’s state income tax, highest in the nation. Many will surely flee to low-tax states and Nevada’s ruling in favor of Hyatt shows they will be welcome. That displeases California’s rearmed pillage people, not exactly a gang of good losers. How this all shakes out for the tax refugees and Mr. Hyatt is uncertain, but for taxpayers some realities are clear. 

Creating an innovative product people want to buy can earn an inventor lots of money. Those who want to keep most of the money they earn are not displaying greed. Greed is what motivates politicians to punish the productive with the nation’s highest taxes. Greed is what motivates state agencies to waste millions of dollars pursuing revenues to which they are not entitled. As California’s militant Franchise Tax Board and Office of Tax Appeals confirm, government greed is truly fathomless. 

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K. Lloyd Billingsley is a Policy Fellow at the Independent Institute and a columnist at The Daily Caller.